Netflix re-tunes its revenue picture to balance the costs of streaming and mailing

By Allison EnrightEditor

Netflix has changed its subscription rates to better balance the revenue and cost related to a shift in consumer demand from mailed DVDs to movie content streamed over the Internet.

Instant streaming of movies over the Internet is winning over customers at Netflix Inc., but someone has to pay for all those web content servers and movie rights.

Netflix is eliminating a combination DVD-by-mail and unlimited streaming rental plan priced at $9.99 in favor of offering consumers the option to subscribe to either format for $7.99 each. If customers want both DVDs by mail and streaming they will have to subscribe to both and pay a minimum of $15.98 per month.

"We are separating unlimited DVDs by mail and unlimited streaming into separate plans to better reflect the costs of each," wrote Jessie Becker, vice president of marketing for Netflix, on the company's blog.

Netflix noted earlier this year that streaming increased by 45.2%, or $117.4 million, its cost of providing content to subscribers in the first quarter ended March 31, to $376.99 million from $259.56 million in the year-earlier quarter. It attributed the great majority of that increase, or $110.5 million, to the licensing cost of streaming content; it attributed the rest of the increase, or $6.9 million, to the cost of delivering the growing volume of video content that subscribers are viewing via the web. It didn't break out numbers of subscribers by DVD and streaming options. The cost of acquiring content for DVDs, meanwhile, declined slightly.

At the end of the first quarter, Netflix had 21.4 million paid subscribers, up 57.4% from 13.6 million a year earlier.